Strong and effective ESG policies can support GPs’ fundraising efforts by showing they are willing to go above and beyond for their investors and are also in touch with how new developments can impact their investment decisions.
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Strong and effective ESG policies can support GPs’ fundraising efforts by showing they are willing to go above and beyond for their investors and are also in touch with how new developments can impact their investment decisions.
Such policies can help elevate a GP’s investment story. Flavia Micilotta, director ESG Solutions Fund services at TMF Group elaborates: “A robust ESG policy provides GPs with the opportunity to demonstrate that they “walk the walk” and not only meet registration requirements, for example, but also use the value of ESG to become more efficient and smarter investors.”
In addition to providing potential value-add, ESG can represent a number of risk elements which GPs need to consider.
When collecting and tracking ESG data, it is critical for GPs to be able to assess and even measure the risk of potential non-compliance.
“There may be companies which are not confirming to several norms and the GP needs to assess its priorities in relation to that. So, engagement is key, coupled with the ability to define the prioritisation of the risks in that respect,” Micilotta says, “The GPs will need to get a good view of the situation and understand how to engage with the company. They can outline the things the companies could improve on in order to be aligned with the expected standards.”
Creating an ESG policy is a highly tailored process and each organisation tends to develop their own approach to this. Micilotta notes that legislation can often serve as a useful guide for investors and managers in creating effective ESG policies: “The law actually tells financial market participants what needs to be reported. It pre-defines what kind of policies need to be in place and what these should look like in terms of disclosures and the like.”
When considering the way ESG impacts an investment, within private markets, these criteria should first be taken into account at the pre-investment stage.
“This is when investors and managers have to define their investment universe. They need to decide which angle to use to define their policies and also need to be made aware of potential conflicting areas of investment potential – whether these are best practices in particular industries, what they can expect,” outlines Micilotta.
This is a strategic phase of investment which makes the support of a firm like TMF critical at this stage. The firm has the capability of going into more depth and running analysis on various aspects of these ESG risk and opportunities.
Private equity firms can choose to perform these tasks internally, by hiring experts in the field. However, this knowledge is very specific and niche. “Having the support of a service provider for ESG data and analysis can ensure managers are in touch, not only with the latest trends in the sector but also that they have a good view and understanding of any interesting synergies and different factors which can come into play. These may not impact them today or tomorrow but could affect their business sometime in future, which is something they should be prepared for,” advises Micilotta.
Flavia Micilotta, director ESG solutions fund services, TMF Group – Flavia Micilotta is leading the ESG offer for funds at TMF group Flavia has held a number of positions supporting several clients particularly in the financial industry on their sustainability journey In Luxembourg she was the partner leading the Sustainability practice in Deloitte Luxembourg until December 2020 and previously she was the Director of the Luxembourg Green Exchange In Brussels, working closely with the EU policy makers, she was for over four years the Executive Director of Eurosif, the pan European sustainable and responsible investment (membership organisation whose mission is to promote sustainability through European financial markets As a sustainability consultant and qualified environmental auditor at EY and Deloitte, she assisted companies embed sustainability in their business models and go beyond the remits of social and environmental compliance Focused on issues ranging from climate change and adaptation, to supply chain management and responsible investments, Flavia worked with several European banks and asset managers to help them streamline their Responsible Investment approach A member of EFRAG’s EU reporting Lab and of the EIOPA Occupational Pension Stakeholder Group, Flavia has supported the work of the European Commission to devise a sustainable finance framework as member of the High Level Expert Group on Sustainable Finance (first and later as part of the Technical Expert Group) for the definition of an EU green bond standard.
